Punjab’s wheat procurement drive
By Ahmad Fraz Khan
AGAINST all earlier fears, signs for a smooth drive for
wheat procurement are emerging in Punjab, and emerging fast.

The earlier fears stemmed from the size of the stock,
massive loans and huge interest payments that Punjab had to
make to maintain the stock with apprehension that it would
find it financially and administratively hard to
substantially add to it.

These fears dissipated, thanks to high international wheat
prices and sustained export which brought stock, loans and
interest payments down to a manageable level.

Currently, the province, which at one point of time, was
expected to start new procurement drive with a carry-over of
four million tons, holds only 2.5 million tons. To its
further relief, these 2.5 million tons belong to the federal
government, which it has kept as a strategic reserve on
behalf of the federation. Thus Punjab’s own stocks have been
cleared.

Punjab, expected to begin procurement with a carry forward
loan of Rs150 billion, has seen its loan dropping to Rs117
billion – a difference of Rs33 billion from earlier
calculations. Even this Rs117 billion loan is the federal
liability because it is the cost of strategic reserves. The
federation would be making interest payments and other
incidental charges (Punjab has already billed it Rs13
billion on this head alone) for these stocks.

The province stands cleared of wheat liabilities, though
practically it would still be holding 2.5 million tons and
spending money to keep the stock, but later recovering from
the federal government.

Punjab has been able to clear its stocks after lobbying for
export when wheat prices started rising in international
market last August. The rise in prices was the result of
drought in Russian which hit the crop and subsequently led
to ban on its export. It created shortage in the world
market, and price started rising. The next supply that comes
from Australia was also delayed by torrential rains in that
region. Thus the price, which had dipped to $190 per ton,
started rising and crossed $300 mark, creating an
international niche for high-priced Pakistani wheat.

Though reluctantly and belatedly, the federal government
agreed to allow export of around one million tons, which was
subsequently increased to three million tons – enabling
Punjab to clear its stocks and retire bank loans.

Though its formal export figures are only 725,000 tons,
smuggling to Afghanistan and Central Asian states eased its
burden to a large extent. In total, the province was able to
release additional 1.4 million tons as private sector moved
in to cash in on high international prices. That is exactly
where the province stands at the beginning of new
procurement season that started last week.

This season, Punjab is expecting to reap around 18 million
tons of wheat. By that calculation, the market would receive
around six million tons tradable surplus. Out of this
surplus, the Punjab Food Department plans to buy 3.5 million
tons and the Pakistan Agriculture Services and Storage
Corporation (Passco) another one million tons, leaving
around 1.5 million tons for private sector.

However, these 1.5 million tons would assume a crucial role
in keeping the price stable. Substantial purchases by the
private sector make sense and official reliance on it is not
without commercial justification. At present, international
prices are hovering around $335 per ton. It makes Pakistani
wheat a commercially attractive proposition, especially to
states like Bangladesh and Egypt where quality standards are
not so high. Most of the previous exports also went to both
these markets.

The role of the Food Department, which would enter the
market with a ready cash of Rs85 billion, should remain
secondary, but crucial.

It should be secondary to private sector, but crucial in
maintaining the price. It only needs to check that private
sector does adopt a go slow policy and lead to a price
crash. Should that happen, it must chime in quickly.

The private sector needs to behave responsibly. For the
first time, international and domestic settings for it are
financially attractive and it should prove that it can see
beyond immediate financial gains, riding on undue profits
and farmers’ misery. It must not lead to price crash with
unfair tactics. Politicians should also see how the private
sector behaves and maintains an eerie background presence;
assuring farmers that they would move in if the need be, but
first let the private sector play its role.